In the Russian Federation remuneration oflabor is characterized by an increased inequality in the level of wagesexisting between branches of industry, regions and enterprises. The level ofwages in the fuel and energy complex, non-ferrous metallurgy, transport, andfinance and credit organizations is considerably higher than the all-Russiawage level. At the same time, in agriculture, light industry, machine building,and budget sphere the level of wages is considerably lower than the all-Russiaaverage level. In conditions of a sharp financial and economic differentiationexisting between branches of industry and enterprises and, consequently,existing between possibilities of fixing wage level, a certain part ofenterprises, to a considerable extent, use non-monetary forms of laborremuneration: providing medical assistance, payment for children’s education, purchase ofapartments, transportation, payment for meals, etc.

Present situation predetermines inequalityin the level of wages between regions. Regional differentiations in the levelof wages are explained, to a considerable extent, by a given structure ofregional economy. For instance, a higher wage level is registered in theregions where dominate extracting industries, first of all, fuel resources(Western Siberia, Eastern Siberia, and Far East regions) that are oriented forexports. Low level of wages exists in Central black earth, Volgo-Viatsky andNorth Caucasian regions with predominantly agrarian sector of economy andmanufacturing industry.

There is a rather considerable differencein the levels of labor costs existing on enterprises of different size, whichis unequally spread in different sectors of economy (Table 3.5).

In economic analysis of labor costs incontemporary Russia, it is important to distinguish accrued wages, paid wages,and back wages. In this connection one should make reservation about theprinciple of labor remuneration, which presupposes such relations between theemployer and employee where the latter credits the former. At the same time,crediting is limited by time. That is why, the gap between paid and accruedwages becomes an objective phenomenon. However, cases of violating the payschedule that stipulates crediting on part of employers in the form ofarbitrary transfer of dates for payment of wages can not be viewed as a normalthing. This phenomenon has become extremely widespread in Russia. Its intensityfluctuates across regions and branches of economy. That is why back wages,pensions and certain benefits arrears become a serious factor, which promotesincome inequality.

Table 3.5

LABOR COSTS IN ORGANIZATIONS OF DIFFERENT SIZE INRUSSIA IN 1998

(results of surveying 25 thousandorganizations; Rubles per month per worker)

Organizations with number of workers, individuals

Less than 50

50-99

100-199

200-499

500-999

1000andmore

Industry

1308,6

1345,2

1625,7

1793,3

1788,8

2381,1

Transport

2253,1

1825,6

1932,1

2047,6

2207,4

2488,1

Communication

2262,3

2702,5

2387,9

3216,6

2411,9

1950,8

Construction

1510,2

1566,5

1925,8

2439,1

2674,3

2811,2

Wholesale and retail commerce

1430,9

1326,9

1330,9

2062,8

1750,0

1919,7

Catering

816,1

955,5

979,3

1216,9

1266,6

1595,8

Housing and utility services and consumerservices

1281,3

1395,0

1423,2

1589,1

1981,7

1943,9

Finance, credit, insurance and provision ofpensions

2318,8

2739,4

2406,8

2896,9

2954,7

3225,8

Total in pilot branches

1524,7

1534,9

1691,7

1983,9

2030,8

2379,2

In the countries with high rate ofemployment the factor of labor remuneration becomes a decisive one fordifferentiating households across different social groups, and the share oflabor remuneration for well-to-do groups of population is the highestone.

Table 3.6

DISTRIBUTION OF HOUSEHOLDS ACROSS AVERAGE PER CAPITA INCOMEAND HOUSEHOLD STRUCTURE IN 1996

Quintile groups of households across average per capita incomerate

Laborremuneration

Share ofhousehold members at the age of

% share in allearnings

Index for per capitawage (lowest 20% =1)

Belowable-bodied

Able-bodied

Aboveable-bodied

Lowest 20% (withlowest rate of income)

54,4

1

36,2

55,2

8,6

Second20%

61,7

1,7

28,4

56,1

15,5

Third 20%

68,4

2,3

25,7

59,1

15,2

Fourth20%

74,9

3,0

23,1

635

13,4

Highest 20% (withmaximum rate of income)

81,9

5,1

19,3

69,1

11,6

In the circumstances when a considerable partof population gets a relatively low money income, it is important in theevaluation of consumer budget to include the value of produce of private plotsof land (full value, not restricted to actual proceeds from the sale ofproduce). For the evaluation of gross revenues, it is necessary to bear in mindthe fact that consumption of produce grown on private plots of land equalizesgross income of urban households where such proceeds in total income arerelatively small. In this connection, development of private plots of land inthe regions can be viewed as a factor, which to a considerable extentdetermines the level of regional consumption.

“Shadow” economy, which represents an illegalindustrial activity, is a factor, which unquestionably influencesinter-regional and inner-regional income inequality. Households receive incomeand work in sectors connected with “shadow economy”. In other words, theyreceive income resulting from shadow employment and use of shadowassets.

Informal sector is an important component of“shadow” economy. In the informal sector individuals are forced to beself-employed in order to earn their living because other sectors of economy donot provide enough work places with appropriate qualification requirements andadequate income. In Russia a noticeable part of qualified workforce in formalsector have second employment in the informal sector in order to increase theirearnings and compensate low wage rate at the main place of work. Informalsector consists of different types of activities and permeates all economy.

In pre-reform Russia some industries weredeveloped to hypertrophied proportions and other industries remainedunderdeveloped. Spontaneous economic changes, on the one hand, have led to areduction in demand for workforce in the overdeveloped sectors of the economyand a sharp fall in employees’ earnings and, on the other hand, accelerated development of thesectors, which must be represented in a market economy (commerce, consumerservices, passenger transport, advertising, mediation, etc.) These branches ofthe economy are singled out by the fact that they work with cash and smallbusinesses are the optimal forms of production organization. In thisconnection, “shadow” earnings have a certain branch tinge (when speaking aboutinner-regional income differences). Regional branch orientation predeterminesincome difference between regions because of “shadow” economy.

Russia--a country with large territory andmultinational population--always had diversity in the level of economic andsocial development. Transition to market relations in the 90’s has considerably influenced theextent of regional differentiation and disproportions in economic development.Regions with powerful fuel and mineral basis, export oriented industry,sufficiently developed infrastructure and financial system have turned out tobe in a privileged position. In a much worse situation turned out to be regionswith historically low starting conditions. As a rule, national formationsbelong to that category, as well as regions with strongly pronouncedmonoproduction, and regions with considerable amount of agricultural sector.

Regional income differentiation of thepopulation is objectively linked with the different macro-economic conditionsof their development was lately aggravated as a result of different pace ofsocial and economic reforms in the regions as well.

The ratio between the maximum and minimumsizes of money income in the regions amounted to 12.1-fold between 1997-1998.In 1999 that ratio went up. For example, the level of differentiation in Moscowhad surpassed the income level in the poorest region (Republic of Ingushetiya)by more than 18-fold.

In 1998 the population of 61 regions hadaverage per capita money incomes below the average all-Russia level. At thesame time only in 13 regions average per capita money incomes were above theall-Russia level. That demonstrates a strong shift in distribution in favor ofpoor regions. The same ratio was registered in 1997, which signifies that therewere no shifts in the distribution of money income between regions.

Regions of North Caucasus are constantlyamong the regions with low incomes. Considerable number of regions with lowaverage per capita incomes is registered in Volgo-Viatsky, Central (exceptMoscow), Central-black soil and Volga regions, on the territory of Siberia andUral and North-West regions.

Territorial disproportion also consists ina different purchasing power of single national currency in different regions.Inter-territorial price differentiation represents the main instrument forachieving conformity between earnings of Russia’s population living in differentregions and supply of consumer goods on regional markets. This inter-regionalprice differentiation is determined not only by a need to compensatedifferences in the circumstances of reproduction of workforce but also by alevel of well being of regional population.